Published on and written by Cyril Jarnias
Bulgaria, positioned at the crossroads of Europe, offers a unique business environment, particularly due to its distinctive regulations on limited partnerships. These structures, although still in the minority, are attracting growing attention from international investors seeking to benefit from legal flexibility combined with tax advantages. By delving into the legal subtleties of these business entities, this article explores how Bulgarian legislation frames the limited liability of limited partners and the strategic role of general partners, while providing insight into the financial implications for entrepreneurs eager to establish themselves there. Discovering the specifics of these regulations reveals not only the economic opportunities but also the potential challenges of interacting with the dynamically evolving Bulgarian market.
Basics of Limited Partnerships in Bulgaria
Definition and Legal Structure of Limited Partnerships in Bulgaria
In Bulgaria, the limited partnership, known as “KD” (Komanditno Druzhestvo), is a legal form of business that brings together two types of partners: general partners and limited partners. This hybrid structure combines characteristics of both a partnership and a capital company.
General partners are responsible for the daily management of the business and assume unlimited liability for the company’s debts. In contrast, limited partners primarily act as investors, with their liability being limited to their capital contribution.
Establishing a Limited Partnership in Bulgaria
To establish a KD in Bulgaria, the following steps are necessary:
- Drafting a partnership agreement detailing the rights and obligations of the partners
- Choosing a unique name for the business
- Opening a bank account for the share capital
- Registration with the Bulgarian Commercial Register
- Obtaining a tax identification number
It’s important to note that no minimum capital is required to create a KD in Bulgaria, making it accessible to entrepreneurs with limited resources.
Obligations and Responsibilities of Partners
In a Bulgarian KD, general partners have extensive responsibilities:
They actively manage the business and make operational decisions. Their personal liability is unlimited, meaning their personal assets can be seized to repay the company’s debts.
Limited partners, on the other hand:
Do not participate in the daily management of the business. Their liability is limited to their capital contribution. They have the right to examine accounting books and receive information about the company’s financial situation.
Advantages and Disadvantages of Limited Partnerships in Bulgaria
- Flexibility in business structure
- No minimum capital required
- Ability to attract passive investors
- Limited liability for limited partners
- Unlimited liability for general partners
- Potential complexity in decision-making
- Restrictions on limited partners’ activities
Tax Aspects and Regulations
In Bulgaria, limited partnerships benefit from an advantageous tax regime. Corporate tax is set at a flat rate of 10%, one of the lowest in the European Union. Dividends distributed to partners are subject to a 5% withholding tax.
KDs are governed by the Bulgarian Commercial Code, which defines their rights and obligations. They must maintain accounting in compliance with Bulgarian and international accounting standards.
Practical Application
A concrete example of using a KD in Bulgaria could be a family-owned wine production business. Family members experienced in viticulture could act as general partners, actively managing wine production and marketing. Other family members or external investors could participate as limited partners, providing capital without being involved in daily management. This structure would combine operational expertise with additional financial input while offering protection to passive investors.
Good to know:
In Bulgaria, a limited partnership is characterized by a distinct legal structure with two types of partners: general partners, who manage the business and have unlimited liability, and limited partners, who invest without participating in management and whose liability is limited to their contribution. Creating a limited partnership requires drafting a partnership agreement, registration with the commercial register, and compliance with certain legal conditions, with no minimum capital required. Obligations and responsibilities vary according to partner type: general partners have active involvement and unlimited obligations, while limited partners benefit from limited liability but less control. Among the advantages of this model are management flexibility and easier access to investments, but general partners must be prepared to assume high risks. Limited partnerships benefit from profit taxation at a competitive rate of 10%, subject to compliance with Bulgarian tax regulations. The main regulation is guided by the Commercial Law, which details the rights and obligations of partners. Case studies, such as that of the limited partnership “Komanda LTD,” show how an effectively structured partnership allows combining management expertise and financing, maximizing profits while skillfully distributing risks.
Liability of General and Limited Partners
Limited Partnerships in Bulgaria: A Hybrid Legal Structure
In Bulgaria, the limited partnership represents a legal business form that combines characteristics of both partnerships and capital companies. This structure allows combining the operational expertise of general partners with the financial resources of limited partners, thus offering considerable flexibility for certain types of commercial activities.
Distinct Roles of General and Limited Partners
In a Bulgarian limited partnership, two categories of partners with well-defined roles are distinguished:
- General partners: They are responsible for the daily management of the business and make strategic decisions. Their active involvement in operations is crucial for the company’s success.
- Limited partners: They primarily provide capital to the business without being involved in its daily management. Their role is essentially that of passive investors.
Obligations and Responsibilities of General Partners
General partners assume significant responsibilities within the Bulgarian limited partnership:
They are personally and jointly liable for the company’s debts with their entire personal assets. This unlimited liability constitutes an additional guarantee for the company’s creditors.
General partners have the power and duty to manage the business daily. They make operational decisions, represent the company to third parties, and are required to act in the company’s interest.
In case of management fault, general partners can be held liable for losses suffered by the company or third parties. Their status resembles that of a sole proprietor in terms of liability.
Rights and Limitations of Limited Partners
Limited partners benefit from a more protected status within the Bulgarian limited partnership:
Their liability is limited to the amount of their capital contribution. In case of business bankruptcy, they risk losing no more than their initial investment.
Limited partners do not have the right to interfere in the daily management of the business. Their role is generally limited to a right to examine accounts and major decisions during general meetings.
They receive a share of profits proportional to their contribution, without bearing the risks related to business management.
Illustrative Examples
Imagine a Bulgarian limited partnership specializing in real estate development. General partners could be experienced professionals in the sector, responsible for project selection, construction site supervision, and property marketing. Limited partners, on the other hand, would be investors providing funds necessary for land acquisition and construction, without being involved in operational aspects.
In another case, a limited partnership could be created to operate a restaurant chain. General partners would be experienced chefs and managers, while limited partners would provide capital necessary for opening establishments and their equipment.
Recent Developments in Bulgarian Law
The legal framework governing limited partnerships in Bulgaria has undergone some adjustments in recent years. Reforms have particularly aimed to strengthen transparency in governance structures and clarify the rights and obligations of different types of partners.
Special attention has been paid to protecting limited partners’ interests, with the introduction of stricter control mechanisms over general partners’ management. These developments align with a European trend aimed at harmonizing corporate governance practices.
Comparison with Other Legal Forms in Europe
The Bulgarian limited partnership shows similarities with structures existing in other European countries, such as the Kommanditgesellschaft (KG) in Germany or the société en commandite simple (SCS) in France.
However, certain particularities of Bulgarian law distinguish it, especially in terms of required minimum capital and incorporation formalities. Compared to a classic limited liability company (LLC), the limited partnership offers greater flexibility in distributing roles and responsibilities among partners.
Compared to a joint-stock company, the Bulgarian limited partnership allows for more personalized management and more direct control of operations by general partners, while offering limited partners liability limitation similar to that of shareholders.
Good to know:
A limited partnership in Bulgaria is characterized by the association of general partners, who manage the business with unlimited liability, and limited partners, whose responsibility is limited to their capital contribution. General partners hold significant legal obligations, being responsible for daily management and liable with their personal assets in case of company debts, similar to other business forms like general partnerships. Limited partners, on the other hand, do not participate in management and have protected liability, limited to losing their initial investment, which resembles similar business structures in Europe, such as limited partnerships in France. Recent reforms in Bulgaria have not significantly changed these concepts but strengthen transparency in management, a crucial change compared to other European legislations. For example, in case of bankruptcy, only general partners’ assets beyond their contribution can be seized, illustrating the balance of responsibilities in this type of company.
Minimum Capital Requirements
Minimum Capital Requirements for Limited Partnerships in Bulgaria
In Bulgaria, legislation regarding minimum capital for limited partnerships is relatively flexible. Unlike other legal forms, limited partnerships are not subject to a fixed minimum capital requirement. This flexibility offers entrepreneurs and investors great freedom in structuring their business.
Differences Between General and Limited Partners
Bulgarian commercial law makes no distinction between general and limited partners in terms of minimum capital requirements. However, it’s important to note that general partners’ liability is unlimited, while that of limited partners is limited to their contribution. This difference in liability can influence investment decisions, even in the absence of specific capital requirements.
Administrative Procedures
Although there is no minimum capital required, founders of a limited partnership must follow certain administrative procedures:
- Drafting the company’s articles of association, specifying each partner’s contributions
- Opening a bank account in the company’s name
- Filing incorporation documents with the Bulgarian Commercial Register
- Registration with tax authorities
The Commercial Register verifies compliance of submitted documents but does not impose a minimum amount for share capital.
Legal Framework
Provisions governing limited partnerships are mainly contained in the Bulgarian Commercial Code. Articles 99 to 112 specifically address this legal form, without however mentioning minimum capital requirements.
Practical Implications
The absence of minimum capital requirements presents several advantages for investors:
- Ease of creation for small businesses and start-ups
- Flexibility in structuring initial financing
- Ability to adapt capital to the business’s real needs
For foreign investors, this flexibility can make Bulgaria particularly attractive as an investment destination.
Evolution Perspectives
Currently, there are no concrete projects to modify capital requirements for limited partnerships in Bulgaria. However, within the framework of continuous harmonization with European Union standards, future adjustments cannot be excluded. Investors should remain attentive to potential legislative developments that could impact companies’ capital structure.
Good to know:
In Bulgaria, legislation on limited partnerships does not impose specific minimum capital for creating such structures, offering flexibility to investors. According to the Bulgarian Commercial Code, general and limited partners are not subject to distinct capital requirements, focusing mainly on contractual commitments defined in the partnership agreement. For depositing and managing capital, registration with the commercial register is mandatory, but no minimum amount is required at this stage, simplifying administrative procedures for investors. Articles 99 to 100 of the Commercial Code specify these rules, and although the current framework does not foresee immediate revisions, economic developments could influence future modification of capital requirements. In practice, this absence of a minimum threshold attracts local and foreign entrepreneurs, allowing them to quickly adapt to market conditions, although vigilance remains necessary regarding contractual legal commitments to be respected.
Advantages and Disadvantages of Limited Partnerships
Advantages of Limited Partnerships in Bulgaria
Management Flexibility and Hybrid Structure
Limited partnerships in Bulgaria offer remarkable flexibility in terms of management. This structure allows combining advantages of both a partnership and a capital company. General partners, responsible for daily management, can make quick and efficient decisions, while limited partners provide capital without interfering in operational management.
Investor Attraction
The clear distinction between general and limited partners makes this legal form particularly attractive to investors. Limited partners can invest in the business while limiting their liability to their contribution, which encourages capital inflow. This structure is ideal for projects requiring significant financing but where investors prefer to remain passive.
Tax Advantages
In Bulgaria, limited partnerships benefit from an advantageous tax regime. The corporate tax rate, set at 10%, is one of the lowest in the European Union. Additionally, dividends distributed to limited partners are subject to a tax rate of only 5%. This attractive taxation can significantly increase investment profitability.
Personal Asset Protection
For limited partners, liability limited to their contribution offers significant protection of their personal assets. This characteristic is particularly appreciated by investors seeking to diversify their portfolio while minimizing risks.
Disadvantages of Limited Partnerships in Bulgaria
Unlimited Liability of General Partners
One of the main disadvantages for general partners is their unlimited liability. They are personally liable for the company’s debts with their entire personal assets. This extended liability can represent considerable risk, particularly in volatile business sectors or in case of company financial difficulties.
Decision-Making Complexity
The presence of two categories of partners with different rights and responsibilities can complicate the decision-making process. General partners, although having operational control, must sometimes consider limited partners’ interests, which can slow down certain strategic decisions or create internal tensions.
Legal and Administrative Obligations
Limited partnerships in Bulgaria are subject to specific legal and administrative obligations. They must maintain rigorous accounting, produce annual financial reports, and comply with Bulgarian commercial register regulations. These requirements can represent a significant administrative and financial burden, particularly for small structures.
Restrictions on Share Transfers
Transfer of partnership shares, particularly those of general partners, can be subject to significant restrictions. These limitations can reduce investment liquidity and complicate partner exit, which can be a deterrent for some potential investors.
Risks of Conflicts of Interest
The dual structure of limited partnerships can generate conflicts of interest between general partners, who manage the business, and limited partners, who provide capital. These tensions can arise particularly on issues of investment strategy or profit distribution.
Perception by Third Parties
In some cases, the limited partnership legal form may be perceived as less stable or less transparent by business partners or financial institutions. This can sometimes complicate access to bank credit or negotiation of important contracts.
Good to know:
Limited partnerships in Bulgaria offer notable management flexibility by allowing general partners to lead while limited partners participate mainly through capital, thus attracting investors while maintaining a clear distinction between roles. Tax-wise, this structure benefits from specific advantages in Bulgaria, including favorable taxes on reinvested profits. However, general partners face unlimited liability, increasing personal risks, and the duality of partners can complicate decision-making, requiring well-defined agreements. Additionally, Bulgarian regulations impose additional administrative obligations, such as detailed registration of articles of association and strict compliance in reporting, making good knowledge of current legislation crucial to avoid complications.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
